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September 9, 2011

‘Gold Is Dirt Cheap,’ Says Investment Guru Marc Faber

GloomBoomDoom publisher is bullish on the metal, noting that market volatility should continue given low interest rates

Investment expert Marc Faber says that gold may correct but it will be higher for some time so long as the people running the U.S. government keep interest rates low and continue printing money. Considering that the metal is trading above $1,850 an ounce, gold is "dirt cheap," Faber said during an interview with Yahoo’s Daily Ticker on Friday.

“As long as we have characters like Obama ... and Bernanke … gold will be very well supported,” Faber said. “Quite frankly, I have no idea how high gold will go, but I think it will go higher.”

Faber, the Asia-based publisher of the GloomBoomDoom report, predicted that the price of the precious metal is likely to remain volatile and could certainly experience corrections. In the long term, however, "gold will be very well supported" because of global demographics and the continued decline of the U.S. dollar, he added.

When comparing gold prices to the amount of wealth created in the emerging markets over the last decade and the increase in the monetary base worldwide, the price of gold is "relatively low," Faber said. “According to some statistics, the gold price today should be worth between $6,000 per ounce and $10,000 per ounce."

The market’s volatility and the momentum behind precious metals is a consequence of current monetary policy, the investment guru believes. "I have argued for years that the Federal Reserve, with its artificially low interest rates, instead of creating monetary and economic stability, it has created more instability by creating the Nasdaq bubble, the housing bubble, the commodities bubble and now creating a giant government debt bubble," Faber said.

As for the stock markets, he noted, they are likely to be range-bound in 2011 and highly volatile for the next few years. “Markets, for the next few years, will go up and down at least 20-30% per annum and will not make much headway in real terms – in gold-adjusted and inflation-adjusted terms,” he said.

“Volatility is not the sign of a healthy market,” Faber said. “It is a consequence of zero interest rates.”

In terms of deflationist arguments, such as those made by Paul Krugman, Faber projected that the private-debt collapse and contraction will exceed the government debt creation and the S&P 500 stock index will collapse to 400. "I sympathize with that,” Faber said. “Thus, I say you should have about 25% of your money in stocks, 25% in real estate, 25% in gold and silver and 25% in cash.”